2.
Hindustan Antibiotics Limited (H.A.L.) is engaged in the manufacture of several
antibiotic drugs including Penciling. It has a plant at Pimpri in the State of Maharashtra. Though the installed capacity of
the plant is 1600MMM, , it has been able to produce only 850MMU. H.A.L. is a
Government company fully owned by the Government of India. There is another
government company, I.D.P.L., pro- ducing the same drug. We arc told that at
present there is only one unit in private sector, Alembic, which is producing
the said drug. The total production of Penn-G within the country is sufficient
to meet only 45% of the country's total requirement. The remaining 55% is being
imported.

The
price of the imported Penn-G is half the price at which the locally produced
drug is sold.

3.
Penn-G is produced through complex fermentation under controlled conditions of
strains of the fungus Pecillium Notatum and Pencillium Chrysogenum. It is
stated that the companies all over the world have been trying to develop the
strains to improve the quality and yield. H.A.L.M., which has been producing
the drug in this country for over two decades, has also been trying to improve
the strain as also the quality and yield of the said drug. From 1976 upto 1986,
it was using the Filamentous Toyo Jozo Strains from Japan. Since the said technology became
outdated, it switched over in 1986 to Pellety Strains from Panlabs Inc., U.S.A. Even so, the production could not
exceed 55% of the installed capacity. For all these reasons, H.A.L. has been trying
to devise ways and means to improve the production, quality and yield.

4.
Gist Brocades of Holland (hereinafter referred to as 'G.B.')
is the leading producer of Penn-G in the world. At present, it controls 20 % of
the world market. It has got plants in several parts of the world.

5.
According to a Government of India publication "Technology in Indian Pencillin-G/V
Industry" - a status report prepared under the national register of
foreign collaboration (published in April, 1991) - Panlabs have developed
strains capable of yielding above 60,000 units/ml within a relatively short
period. Antibioticos of Spain has developed strains yielding 60,000 units/ml
whereas G.B. are working at R&D level with strains capable of yielding
above 80,000 units/ml. The production capability of most of the companies
around the world is 60,000 units/ ml. Only G.B. seems to be ahead. The said
publication also states that most of the important information relating to Pencillin
technology is not published since the companies keep it a closely guarded
secret.

6.s a
result of the negotiations between H.A.L. and Max-GE (a company 424 formed by
G.B. and Max India coming together), a Memorandum of Understanding (MoU) was
signed between H.A.L. and M.G.B. on June 20, 1994. The appellants in these three
appeals, viz., Torrent Gujarat Biotec Limited, SPIC and P.B.G. had also offered
to collaborate with H.A.L. for the purpose of improving the quality and yield
of Penn-G and to achieve the full installed capacity. Each of them had also
offered to being foreign technology through their foreign collaborators. Their
offers were. not accepted by the H.A.L. which entered into a MoU with M.G.B. on
June 20,1992 as aforesaid. Soon thereafter,
these three appellants filed writ petitions in the Delhi High Court questioning
the validity of the said MoU. Their case was that though they offered to
provide equally superior technology and had indeed offered more advantageous
terms to H.A.L., their offers were rejected mainly because of the bias on the part
of the Managing Director of H.A.L., Sri A.K.Basu. It is alleged that Sri Basu
was interested in having collaboration only with M.G.B. and with nobody else
and for that reason he managed to see that the offers of all others are
rejected.

Different
reasons were offered by Sri Basu to different parties who approached for such
cooperation. He did not provide them the opportunity to inspect the plant of
H.A.L.

nor
did he provide them the relevant information to enable them to formulate a
specific offer. The malafides on the part of Sri Basu, it is alleged, are
responsible for the impugned MoU whereunder the H.A.L. has agreed to lease out
its plant and all other facilities for an annual amount of Rs. 17 crores to the
proposed Joint Venture Company (J.V.C.) to be formed by H.A.L. and M.G.B.,
whereas the appellants were prepared to offer a lease amount far above the said
figure. The malafides on the part of Sri Basu is evident from the fact that
though the Board of Directors had stipulated a minimum low amount of Rs.31.68 crores
he flouted the said stipulation and agreed to a low figure of Rs. 17 crores. It
is submitted that H.A.L., being a government owned corporation, is an authority
within the meaning of Article 12 and that it was bound to consider all the offers
received in a fair and impartial manner giving an equal opportunity -to all
competitors to give their bids and select the most suitable among them. This
fairness has not been observed by the H.A.L. in arriving at the impugned MoU.

Indeed,
the submission is that the Government/H.A.L. should have called for tenders. or
offers on a competitive basis and selected the most suitable among them. This,
it is submitted, is the requirement of Article 14. The impugned MoU has,
however, been arrived at in a hush hush manner.

Even
today, nobody knows what are the terms and conditions of the said MoU except
the lease amount. A public body cannot and should not adopt such a procedure,
it is submitted. There should be transparency in its dealings which is woefully
lacking in this case. Reliance is placed upon the decisions of this Court in Tata
Cellular v. Union of India (1 994 J.T.(4) 532) and Sterling Computers Limited
v. M/s.M & N Publications Limited & Ors. (1993 (1) S.C.C.445) as well
as the decision of the Allahabad High Court in Churk Cement Mazdoor Sangh &
Ors. v. State of Uttar
Pradesh (A.I.R. 1992
All.88). The High Court, however, has repelled all the said contentions and
dismissed the writ petitions.

7. The
case of the respondents*, on the other hand, is that this was not a case where
the government could have followed 425 the practice of inviting the tenders.
Such a procedure was just not possible in the circumstances. This was not a
case of awarding a contract or a simple case of granting lease.

It was
a case where H.A.L. was trying to import the best technology in the world to
achieve its installed production and to improve its quality and yield while at
the same time reducing the cost of production so as to compete in the world
market. With the liberalization policy, there was an apprehension of import of
Penn-G being placed on the O.G.L.

(Open
General Licence) in which case the H.A.L. would have been driven out of market
because the cost of Penn-G produced by it is double the price of imported
Penn-G.

Hence
the urgency. No foreign company was prepared to part with technology except by
way of J.V.C. Each of the appel- lants have or proposed to have, a foreign
company as its partner and each of them was offering the technology of its
foreign partner. H.A.L., however, found that G.B. is the world leader in the
field that it has the best technology in the world and has a share of 20% in
the world market. A tieup with such market leader is bound to prove beneficial
to H.A.L. Over the last several years, several Indian companies including the
H.A.L. have been trying to obtain technology from G.B. but they failed. Only in
the year 1993, did G.B. agree to the H.A.L's. proposal for collaboration but
only through its Indian partner, viz., M.G.B. The foreign collaborators of some
of the appellants do not have technology comparable to G.'B. and none of them
have a *The respondents to the writ petitions in High Court and in these
appeals are

(1)
Union of India represented by the Secretary to Ministry of Chemicals and
Fertilizers,

8. It
is stated further by the respondents that while SPIC offered the technology of Cipan,
Torrent and P.B.G. offered the technology of Biotica of Slovakia. The technologies
offered alongwith the facts relevant to each of these appellants was considered
and their offers rejected by the Board of Directors of H.A.L. In the
circumstances, the appellants cannot complain that their offers were not fully
and fairly considered. The real reason for the appellants approaching the court
is that they are afraid of being driven out of market if the proposed
collaboration between M.G.B. and H.A.L. bears fruit. Because of their inferior
technology, they will not be in a position to compete with the proposed J.V.C.
and this is the real reason why they are out to scuttle the MoU between H.A.L.
and M.G.B. In particular, it is stated that in the case of P.B.G. it did 426
not even disclose the name of its foreign collaborator in the first instance
and only much later did it indicate that its foreign collaborator was Biotica
of Slovakia. The letter enclosed by them from the said foreign company was a
vague one in the sense that it only expressed their willingness to cooperate
with H.A.L in providing technical knowhow subject to their inspection of H.A.L.
facilities and satisfactory terms being negotiated between them. So far as SPIC
is concerned, it is installing its own plant and the technology being adopted
by it has been proved only at pilot plant level and not at commercial plant
level, H.A.L. did not wish to experiment with this new technology. So far as
Torrent is concerned, its tie-up is also with Biotica of Slovakia, whose
technology was found to be inferior than G.B. It is stated further that
notwithstanding such rejection, their offers were reevaluated by H.A.L. at the
instance of Government of India. Even on such reevaluation, it was found that
the collaboration with G.B. is more in the interest of HAL than collaboration
with any of the appellants or their foreign collaborators. The allegations of
bias and malafides attributed to Sri Basu are denied specifically.

9.
Before we deal with the contentions urged by the appellants, it would be
appropriate to examine the, relevant facts and to note how the offers of the
appellants and the offer of M.G.B. were dealt with and processed by H.A.I..

10. In
August, 1993, the Managing Director of the H.A.L., Sri A.K.Basu, sought
permission of the Government to visit Holland between August
30, 1993 and September 2, 1993 to discuss and finalise a MoU
(Memorandum of Understanding) between H.A.L. and Max-GB with whose
representative, H.A.L. was having discussions. In this letter, the Managing Direc-
tor set out the broad outline of the proposed J.V.C. between H.A.L. and M.G.B.
While approving the visit, Government of India directed that Managing Director
should not finalise the MoU or enter into any commitment. It directed that all
the alternative proposals should be examined for their relative merits and
advantages.

11. In
the meeting of the Board of Directors of H.A.L. held on 20th September, 1993, the Managing Director explained in
detail the progress of Pencillin production and also gave a detailed account of
the discussion he had with G.B. in Holland. He explained the salient features of the draft MoU proposed to be
entered into with M.G.B. He stated that the technology to be obtained from G.B.
would be the best in the world and that it is a lifetime opportunity for H.A.L.
to get this technology. He stated that with little modification, the production
of pencilling can be increased substantially. He placed before the Board a
profile of the increased production and profitability with the induction of the
M.G.B. technology. He also explained why the offer of Ranbaxy labs, who offered
to bring in the technology of Hoescht, AG, Germany was not definite or acceptable. He pleaded for approval of the draft
MOU between M.G.B. and H.A.L. The Chairman of the Board, however, expressed his
opinion that since approval of the proposed Mou would require the approval at
the highest level in the government, the company should formulate its proposal
indicating the examination of available options including the possibility of
direct tie-up for acquiring technology and participation.

Accordingly,
it was decided to explore the available options. The Managing Director 427 was
asked to obtain extension of time by a month for signing the proposed MoU with
M.G.B.

12. At
the meeting of the Board of Directors held on October 10, 1993, the Managing
Director explained in detail the discussions the company officials had with Hoescht/Ranbaxy
during their visit to Pimpri on 17th September, 1993. He explained that the
foreign collaborators were not agreeable to transfer the technology on
exclusive basis on the already agreed lumpsum, viz., on one million DN1, and
hence the agreement could not be finalised. The Board noted the statement.

13.
The matter came up before the Board again on October 26, 1993. At this meeting,
the Managing Director emphasised the need for upgrading the Pencillin
technology and reiterated his opinion that technology of G.B. is the best in
the world and that H.A.L. should not forego the op- portunity of obtaining its
technology. He indicated the high profits which H.A.L. would earn through such
collaboration. The Managing Director also informed the Board about the
discussions he had with the P.B.G. and expressed his opinion that right now the
said group had no technology but that they would be able to arrange for the
technology and would be getting in touch with H.A.L. by 27th November, 1993.
The Managing Director further submitted that the offers of M.G.B. and others
would be available by last week of November and that it is better that all
these offers arc evaluated by a subcommittee of the Board.

14. At
the meeting of the Board held on 5th December, 1993, the Managing Director informed the Board that though
P.B.G. had earlier informed that they would get in touch with H.A.L. by 27th November, 1993 there was no response from them. He
stated that P.B.G. had no proven technology to offer to H.A.L. At this meeting
the Board noted that the need for Pencillin technology for the company was not
considered by the Board earlier and the process for signing MOU was initiated
by the Managing Director without any ap- proval of the Board, The Chairman
stated that in addition to M.G.B., P.B.G. and Ranbaxy-Hoescht, another party,
SPIC has also expressed interest in offering Pencillin technology to H.A.L. The
Board noted that SPIC is setting up a Pencillin plant with Cipan technology
which is in no way superior to the technology presently employed by H-A.L. It
was accordingly decided to reject the offer of SPIC. At this meeting the
Managing Director informed the Board that once H.A.L. gets top grade
technology, the units of the other licencees within the country would become
uneconomic and that is why they were trying to stall H.A.L. from getting the
best technology. He also stressed the need for up- grading the present
technology by H.A.L. and stated that with G.B. technology the production of
H.A.L. will be doubled to 2000MMU in two years' time without any need for
further fermentors. The Board then decided that all interested parties be
informed to submit their proposals by 20th December, 1993 and that no further time shall be
granted. The date, 20th
December, 1993 was later
extended to 31st
December, 1993, in the
Board meeting hold on 20th
December, 1993. At
this meeting (20th December, 1993) the Board rejected the offer of P.B.G. on
the ground that the 428 technology of Biotica of Slovakia offered by it was not
superior to the technology presently employed by H.A. L.

15. At
the Board meeting held on February 4, 1994 the Board was informed that the
proposal of M.G.B. has been received.

The
Board directed that these proposals be sent for evaluation to the Sub-Committee
appointed earlier.

16. At
its meeting held on 28th March, 1994, the Board was informed that SPIC and
P.B.G. (whose proposals were rejected by the Board) have represented to the
Government of India that they should be given a further opportunity of explaining
their proposals whereupon the Government has directed the Board to give a
further opportunity to the said two companies. Accordingly, the representatives
of these two companies were heard by the Board which rejected both the
proposals again. The Board then heard the representatives of M.G.B. about their
proposals. The representative of M.G.B. did not agree to having 49% interest in
the proposed Joint Venture Company (J.V.C.) and insisted upon equal sharing,
i.e., 50% each.

17. By
the date of the next Board meeting on April 28, 1994, the report of the
Sub-Committee (which was appointed in the Board meeting dated October 26, 1993
to evaluate the proposals for upgradation of Pencillin technology) was
received. It would be appropriate to briefly refer to the salient points in the
report of the SubCommittee at this stage.

18.
Pursuant to the directions of the Government, the Sub- Committee says, it
looked into the following four issues also in addition to the evaluation of the
proposals of collaboration'received from various parties. The four issues
referred by the Government are:

"(i)
The need for obtaining technology for upgradation of the production capacities
in the Pencillin Plant and whether the technology can be obtained directly
rather than going through the process of a joint venture;

(ii)
Whether the technology indigenously would be adequate to achieve the objective
of running HAL profitably;

(iii)
In the event such a joint venture proposal as proposed by HAL management materialises,
how best the interest of the employees can be protected-, and (iv) Pencillin
plant of HAL is a profit centre. Whether such a proposal for joint venture
would leave HAL with non- (profit making centres?)"

19.
The Subcommittee held several sittings at which it heard a number of officials
of H.A.L. and others. It found inter alia that the cost of production of H.A.L.
is higher than I.D.P.L. which in the opinion of the Sub-Committee was totally
unwarranted. It was of the opinion that by rationalising the cost of production
and by carrying out other measures, H.A.L. would be in a position to cam
substantial profits by itself without any tie-up with the foreign company. It
also commented upon the failure of H.A.L., which is the pioneer and the largest
manufacturer in the country, in not approaching the leading Pencillin
manufacturers in the world directly for acquisition of technology and instead
waiting for the Indian companies to enter into agreements with foreign
technology sources and then entering into discussion with these Indian firms
for collaboration. The Sub- 429 Committee stated:

"59.
As a result of the evaluation of the HAL's production efficiencies, the Sub--
Committee is firmly of the view that there is tremendous scope for improvements
and higher level of efficiency and cost reduction in the pencillin production
operations of HAL even with the existing technology. It came as a surprise to
the SubCommittee that HAL which is the largest pencillin producer in the
country, what to talk of comparing internationally, does not compare favourable
with IDPL pencillin production operation insofar as raw material land utility
costs are concerned. A draft on latest cost price study report for the year
1994-97 on pencillin first crystals production as prepared by BICP a copy of
which could be had by 2 1 st April, 1994 contain the actuals for the ye=
1992-93. In respect of raw materials costs per capital of pencilling
production, HAL has been Rs.334 which is Rs.73 higher than Rs.261 spent by
IDPL. For the utilities HAL spends Rs.259 which is Rs.69 higher Om Rs. 190
spent by the IDPL. Even if HAL's cost of raw materials and utilities in the
short term cannot be brought to the level of IDPL, in the year 1995-96 when the
production of HAL is expected to be II 00 MMU it should be possible for HAL to
attain improvements and cost reduction to achieve profit of Rs.288 per Bu as
examined above which should give the profit of Rs.31.68 crores (at current sale
price for Pen.G first crystal at a production level of II 00 MMU for
HAL.)"

20. The
Sub-Committee then noted the fact that, offers of SPIC and P.B.G. have been
rejected by the Board which rejection was reiterated after re-hearing them
pursuant to Government directions.

21.
The Sub-Committee also noted that since Ranbaxy has failed to submit its
proposal within the time specified the only proposal left was that of M.G.B.
After evaluating the proposal of G.B. and its offer of Rs. 13 crores rental per
annum and after considering the potential of 14.A.L. and its performance, the
Sub-Committee expressed its opinion in the following words:

"62.
The Sub-Committee is of the opinion that the proposal of leasing out pencillin
production facilities of HAL to JVC in which both HAL and Max GB would have
fifty per cad equity each should be decided by the Board keeping in view of the
possibility of increasing production and productivity of pencillin operations
in HAL without induction of new technology but by making improvements and
achieving efficiency particularly in the areas of raw material consumption and
utilities to substantial reduce cost. The acquisition of now technology if
considered absolutely and if the same is to be inducted through 'the
methodology of the proposed NC then the lease rental of the HAL's production
facilities to be paid by the JVC should be computed keeping in view the
financial parameters suggested by the Sub-Committee.

22.Now
coming back to the Board meeting held on April 28, 1994, an elaborate discussion took place
on the report of the Sub-Committee whereafter the Board took the decision which
is recorded in the minutes. Paras 205.10.11 and 12 of the Minutes read as
follows:

"205.10.11.
After detailed discussion on the report of the Sub-Committee the Board agreed
that the Company should go in for higher levels of production beyond II 00 MMU
which can be achieved with the present technology. and for which the costs
could be reduced to the levels suggested 430 by the Sub-Committee. It was
decided that the Company should acquire technology for reaching a production
level of 1800-2000 MMU without addition of more fermentors (except the two
which are yet to be installed). It was also decided by the Board that the only
available option of acquisition of the technology offered through the route of
JVC as proposed by Max-GB with HAL having 50% equity each in the JVC be
accepted but the lease rental payable by the JVC to HAL should be computed
taking into account the profit of Rs.31.68 crores at the level of production of
1100 MMU.

To
this, MD stated that this may not be ac- ceptable to Max-GB and he felt that at
best Max-GB may agree to the increase in the lease rental offer of Rs.13 crores
by Rs.one or two crores. He stated that the lease rental of Rs.13 crores had
been found to be fully justified by the evaluation presented before the
Sub-Committee. However, the directors of the Board except the MD agreed that
lease rental of Rs.31.68 crore as computed by the Sub Committee should form the
basis of the calculation as this level of profitability is achievable at 1 100
MMU production and with reduction of materials and utilities cost by Rs.110 as
suggested by the Sub Committee. 205.10.12.

The
Board accordingly decided that the lease rental should be calculated at this
assessed profitability of Rs.31.68 crores and this should be adjusted to
account for depreciation, proportionate interest on lease rental paid by HAL on
leased assets in the Pencilli Plant and adjustment for the income tax
liability. (Reference - para 44 of the SubCommittee's report.) The Board authorised
the MD to compute the lease rental as above and communicate to Max- GB the
lease rentals that would be acceptable to HAL from the JVC and in due course
inform the Board of their acceptance." 23.The Managing Director of H.A.L.,
Sri Basu who did not agree with the Board Resolution aforesaid, addressed a
letter dated May 3,
1994 to the Secretary,
Ministry of Chemicals and Fertilisers. This is a very detailed letter enclosing
several work sheets. After setting out his reasons in detail as to why the
Board resolution stipulating a minimum lease amount of Rs.31.68 crores is not
appropriate - and after setting out the several advantages that would flow from
the proposed J.V.C. between H.A.L. and M.G.B. - the letter concluded:

"2.0
To conclude, the Sub-Committee's report has not taken into consideration the
following:- (a)HAL's present technological limitations.

(b)The
opportunity at hand for HAL in particular and India at large in forming a Joint Venture between HAL and MaxGB.

(c)Future
fluctuations in the Pencillin pricing policy and the vagaries of price
escalation of raw materials and utilities.

(d)Also
the calculations of profit and other parameters as contained in the report need
to be verified as indicated earlier in this letter.

It is,
therefore, my request that the report may be got evaluated by you keeping in
mind the points that have been raised by me."

24.
After receiving the letter of the Managing Director aforesaid, the Government
of India obtained the advice of Padmabhushan Prof M.M.Sharma, Direc- 431 tor
and Head of the Department of Chemicals and Technology, University of Bombay.
Prof. Sharma is a fellow of the Royal Society and also a fellow of the Indian
Academy of Sciences. The judgment of the High Court refers to the substance of
the opinion tendered by Prof Sharma.

Prof.Sharma
is stated to have opined that the best technology for Penn-G in the world was
with G.B. and that it was in the interest of H.A.L. as well as in the interest
of the country to acquire that technology. lie also opined that such first grade
technologies in the frontier areas were just not available irrespective of
their cost. He also approved the proposal of J.V.C. and was of the opinion that
it was in the commercial interest of H.A.L. besides the national interest. It
is after receiving this report that a "directive" under Article 117
of the Articles of Association was issued. The "directive" is
container in the letter dated June 20, 1994
addressed to Sri A.K.Basu, Managing Director, H.A.L. It directs H.A.L. to enter
into a MoU at the earliest with the M.G.B. for establishing a J.V.C. The letter
reads as follows:

"Sir,
I am directed to refer to your letter No.MD/IV/40 IO dated the 3rd May. 1994 on
the subject cited above and to say that the matter relating to the proposed
collaboration between Hindustan Antibiotics Limited (HAL) and MAX- GB. a joint
venture company of Max India and Gist-Brocades of Netherlands. for setting up of a joint venture
in the existing plant of Hindustan Antibiotion Limited for manufacture of Pencillin,
has been considered by the Government in the light of the position/issues
raised in your above letter.

2. It
has been decided with the approval of the Minister for Chemicals and Fertilisers
to issue the following directive to Hindustan Antibiotics Limited in exercise
of the power under article 1 17 of the Memorandum and Articles of Associations
of Hindustan Antibiotics Limited;

(i)
Hindustan Antibiotics Limited may enter into a Memorandum of Understanding (MoU)
at the earliest with MAX-GB for establishing the proposed joint venture,
subject to final approval of the Central Government.

(ii)The
lease rent to be paid to Hindustan Antibiotics Limited by the Joint Venture
Company be negotiated immediately with MAX-GB by a Committee comprising the
Managing Director, Hindustan Antibiotics Limited, the Joint Secretary and
Financial Advisor, Ministry of Chemicals and Fertilisers, a part- time
official, Director on the Board of Hindustan Antibiotics Limited and Shri Vinod
Vaish, Joint Secretary to the Government of India in the Department of
Chemicals and PetroChemicals and the agreed amount be in- corporated in the
Memorandum of Understanding.

Yours
faithfully sd/- (C.Lal Dy. Secretary to the Govt of India."

25.
Pursuant to the aforesaid letter, a Committee as contemplated in Para 2(ii)
thereof was constituted. The Committee held negotiations with the
representatives of the M.G.B. and a MoU was signed on the same day stipulating
an annual rental of Rs. 17 crores. On behalf of H.A.L., only the Managing Director
, Sri Basu, signed witnessed by two officials of the H.A.L.

26. At
this stage, going back a little, it may be stated that a Board meeting was 432
held on May 25, 1994. At this meeting, the Managing
Director brought to the notice of the Board the letter written by him to the
Secretary, Ministry of Chemicals and Fertilizers. The Board took objection to
certain statements made in the said letter. The Board was also critical of Prof
Sharma's expertise in antibiotic fermentation processes - indeed with the very
consultation with him in the manner it was done.

27.
After the MoU was signed on June 20, 1994,
the said fact was brought to the notice of the Board of Directors at its
meeting held on September
6, 1994. The Board
merely "noted" the fact.

28. We
are told that the Government of India has not yet approved the MoU. The
respondents' counsel explained that this was because of the pendency of the
writ petition in the High Court and these matters in this Court.

29. It
would be noticed that there is no reference to Torrent Gujarat Biotech Limited
in any of the Board Resolutions or in the Sub-Committee report. According to
Torrent, they have obtained technology from Biotica of Slovakia and have set up
a plant which according to them was to go into production by the end of 1994. Torrent
says that it addressed a letter on April 12, 1994 to the Government of India
expressing their interest in upgrading the technology of H.A.L. and in
improving the production by investing Rs.40-50 crores. It is stated that their
offer was rejected by H.A.L. on May 21, 1994 and that thereafter its representatives met the Minister of
State on June 3, 1994 and represented their case. On June 15, 1994, it is stated, the Minister of
State asked the Managing Director of H.A.L. to consider Torrent's proposal. Its
grievance is that without considering its case, the Managing Director entered
into MoU with M.G.B. on June
20, 1994 in an
unseemly hurry.

30. It
would be evident from the facts narrated above that the Managing Director of
H.A.L., Sri A.K.Basu was all out for a technological tie-up with G.B. and with
no other. To start with, he sought the permission of the Government of India to
go to Holland in August/September, 1993 to
discuss and finalise the MoU with M.G.B. While permitting him to go and have
discussion there, the Government of India instructed him not to enter into a MoU
or to make any commitment since the Government was of the opinion that all the
alternative proposals should be examined and a decision taken after examining
the merits of each proposal. In the meeting of the Board of Directors of H.A.L.
held on September 20,
1993, Sri Basu
explained the advantages that will accrue from a tie-up with M.G.B. According
to him, it was a lifetime opportunity for H.A.L. which it should not forego.
This was his theme throughout in all the Board meetings. (Indeed, in one of the
meetings, the Board of Directors found fault with Sri Basu for entering into
negotiations with G.B./M.G.B. without its approval. It appears obvious that Sri
Basu had taken the permission of only the Government of India for entering into
negotiations with G.B./M.G.B. and informed the Board only after his visit to Holland.) Finally, when the Board of
Directors decided on April 28, 1994 that the lease amount payable by the
proposed J.V.C. (to be formed by H.A.L. and M.G.B. with 50 % share holding
each) should not be less than Rs.31.68 crores per annum and instructed 433 him
accordingly, Sri Basu wrote a letter directly to the Secretary to the
Government of India, Ministry of Chemicals and Fertilizers setting out in
detail why the Board resolution was not appropriate and why it is not realistic
to accept lease amount at that level. It also appears prob- able that it was at
his instance that the Government of India sought the opinion of an expert,
Viz., Prof M.M.Sharma. After receiving the opinion of Prof Sharma, the
Government of India gave the "directive" to H.A.L., addressed to Sri Basu
on June 20, 1994, to enter into a collaboration
agreement with M.G.B. in the form of a Joint Venture Company. For the said
purpose, the Government of India itself constituted a Committee of three
members including the Managing Director, Sri A.K.Basu. On that very day, i.e., 20th June, 1994, negotiations were held and MoU
signed between H.A.L. and M.G.B. It does not appear that the Board of Directors
of H.A.L. was having any part in the negotiations or in the matter of or
entering into the MoU with M.G.B. The MoU was signed by Sri Basu on behalf of
the H.A.L. The alacrity with which MoU was signed on the very day on which the
Government directive was issued also shows the deep interest the Managing
Director had in collaboration with M.G.B. But it is not possible to say beyond
this. It is quite likely that Sri Basu was actuated by the best of intentions,
that he was of bona fide belief that entering into a technological agreement
with M.G.B. (which really meant technical collaboration with G.B. of Holland)
was a lifetime opportunity for H.A.L. which it should not forego.

It
could also be that he was genuinely satisfied that since G.B. is the world
leader and has the best technology, it can deliver goods far better than any
other foreign company. It is also possible that Sri Basu was for collaboration
with M.G.B. for all the wrong reasons. We are not able to say one way or the
other. The presumption is that being the Managing Director of H.A.L., he was
acting in its best interests. This presumption is not displaced in this case.

The
fact remains that G.B. is the world leader in Penn-G field. Its technology is
one of the best if not the best.

It has
a 20 % sham of the world market and has got units all over the world. As
against it, the three appellants (we are treating Torrent too on pair with SPIC
and P.B.G. though as a fact it was not in the picture at the relevant time, as
stated hereinebefore) were offering technology either of Cipan or of Biotica of
Slovakia and the Board of Directors of H.A.L. was of the opinion that both of
them were not acceptable, - Cipan for the reason that its technology was not
yet proved at the commercial production level and Biotica of Slovakia on the
ground that its technology was no superior to the. technology presently
employed by H.A.L.

Among
the seven world leaders mentioned hereinbefore, both Cipan and Biotica of
Slovakia are not to be found. Another Indian company,, Ranbaxy (not a writ
petitioner or appellant before us) offered to obtain the technology of Hoescht
(one of the seven world leaders) but it did not pursue its offer and failed to
submit its proposals. This left only M.G.B. in the field, as stated by the
Sub-Committee. In other words, there was, unfortunately not much of a choice.
In this connection, it must be emphasised that rejection of Cipan and Biotica
of Slovakia technology was not by Sri Basu, but by the Board of Directors and
that too not once but twice.

31.
There is yet another fact. Most of these companies keep their processes and 434
technology a guarded secret. More better the technology, more fervently it is
guarded. And HAL needed a technology superior to the one it was already having.
Not only it was producing only 55% of its installed capacity, its cost of
production was far higher than what it ought to be. It is true, cost of
production could have been reduced to some extent by rationalising and streamlining
the working methods (as pointed out by the Sub-Committee in its report) but the
more important need was to increase the yield from the strains and achieve full
capacity production. On account of efforts made over the years, production had
increased to some extent but it was still way behind its installed capac- ity,
i.e., full capacity production. Thus, it was not a case of merely leasing out a
Government company but a case where the Government company was trying to obtain
the best possible technology. In such matters, sights have to be set far into
the future and arrive at a reasonable prognosis keeping in mind the best
interests of the company. Floating of tenders may not have been a proper method
to adopt in these circumstances. In any event, among the available
technologies, not only has the G.B. the best technology, it was the only source
available, the other having been rejected as already stated. Probably it is for
this reason that the Government of India gave the directive on 20th June, 1994. In the above circumstances and, on
the present material, we cannot say that Sri Basu was either actuated by malafides
or that he was acting out of extraneous reasons.

32.
Next question is whether there was no fair consideration of the offers made by
the appellants. So far as SPIC is concerned, even when it was putting forward
its proposals, it was in the process of setting up a plant of its own for
manufacture of Penn-G. For that reason, it was perceived more as a competitor
rather than as a probable partner. Secondly, its technology was as yet unproven
at commercial production level, which meant that there was an element of risk
involved in adopting that (Cipan) technology. Rejection of its proposals by the
Board - and not by the Managing Director, Sri Basu, as emphasised hercinbefore
- cannot, therefore, be held to be either 'no consideration' or mechanical
rejection. No malafides are attributed to the Board. - In the circumstances,
the complaint of not furnishing full information or not giving inspection of the
H.A.L. plant cannot be said to be motivated or arbitrary. We do not also think
it necessary to refer to the correspondence that passed between SPIC and Sri A.K.Basu
- to which our attention has been drawn by Sri Raval - for the reason that
rejection of proposals of SPIC was not by Sri Basu but by the Board of
Directors. The board proceedings referred to hereinbefore do establish that
Board was acting in its own independent judgment in these matters and was not
being led away by the opinions of Sri Basu. So far as P.B.G. is concerned, it
appears that it did not disclose the name of its foreign partner in the first
instance; it did so only later. Moreover, the letter of Biotica of Slovakia, (P.B.G's.
foreign partner) was found to be vague. Above all, the Board of Directors of
H.A.L. were satisfied that the technology of Biotica was no superior to the one
being employed by H.A.L. Biotica of Slovakia is also not one of the world's
seven leading manufacturers of Penn-G and, therefore, the Board thought that there
was no point in pursuing the proposals of P.B.G. It cannot be said that it was
not a 435 fair decision nor can it be insisted that before rejecting the
proposals of SPIC and P.B.G., the Board of Directors ought to have obtained
technical opinion or the opinion of an expert committee. The representatives of
these two companies were heard in person by the Board and their presentation
fully noted and considered. More cannot be insisted upon as a matter of law or
in the facts of this case. Now coming to Torrent, it entered the picture quite
late. Its foreign partner is the very same Biotica of Slovakia. (It needs to be
stressed that each, of the appellants, as also M.G.B., were offering the
technology of their respective foreign partners and hence, the comparative
merits of these foreign partners becomes relevant.) The complaint of not
affording a proper opportunity to put forward their proposal made by Torrent,
cannot, therefore, be entertained. Similarly, the argument of Sri K.K.Venugopal
and Sri F.S.Nariman that the terms stipulated by M.G.B. should have been put to
the appellants and their response ascertained before finalising the deal, is
beside the point in the circumstances aforestated.

33. '
We may also point out that one other Indian company, Ranbaxy, (not an appellant
before us) offered in the first instance to bring in the technology of Hoescht
- one of the seven leaders in the field - but it did not pursue its offer. It
did not submit its proposals within the time prescribed.

34. In
the circumstances, the only grievance of the appellants is about the lower
rental of Rs.17 crores being accepted in the MoU as against the minimum Rs.
31.68 crores stipulated by the Board of Directors of H.A.L. Firstly, once the
appellant's offers/proposals are found to have been re- jected rightly, they
cannot be heard to complain of the amount of lease agreed between H.A.L. and
M.G.B. Secondly, it appears that the Government of India was satisfied with Sri
Basu's presentation and agreed with him that stipulation of Rs.31.68 crores'
rental was not feasible. in the cir- cumstances and that is why it gave the
directive to him to enter into a MoU with M.G.B. "at the earliest"
for establishing the proposed joint venture. The opinion of Prof Sharma must
also have weighed with the Government in deciding to go in for J.V.C. with
M.G.B. participation. It should be remembered that the Board of Directors of
H.A.L. had also decided to have a technological collaboration with M.G.B. It
would have been a different matter if the Board of Directors had agreed with
the recommendation of the Sub-Com- mittee that there is tremendous scope of
improving and achieving higher level of efficiency and cost reduction in the
operations of H. A.L. itself with the existing tech- nology and without obtaining
any foreign technology and that the H.A.L. should first try that course. On the
other hand, the Board decided in its meeting held on April 28, 1994 that H.A.L. should go in for
technological collaboration with M.G.B. in the form of a J.V.C. Yet another
fact is that negotiations with M.G.B- were held on June 20, 1994 not by Sri A.K. Basu alone but a Committee of three members
of whom one appears to have been a member of the Sub-Committee as well.

35. We
must reiterate that this was not a simple case of granting of lease of a
Government company, in which case the court would have been justified in
insisting upon the authorities following a fair method consistent with Article
14, i.e., by 436 calling for tenders. We agree that while selling public property
or granting its lease, the normal method is auction or calling for tenders so
that all intending purchas- ers/lessees should have an equal opportunity of
submitting their bids/tenders. Even there, there may be exceptional situations
where adopting such a course may not be insisted upon. Be that as it may, the
case here is altogether different. H.A.L. was trying to improve not only the
quantum of production but also its quality and for that purpose looking for an
appropriate partner. They went in for the best. It must be remembered that this
technology is not there for the mere asking of it. All the leading drug
companies keep their processes and technology a guarded secret. Being
businessmen, they like to derive maximum profit for themselves. It is ultimately
a matter of bargain. In such cases, all that need be ensured is that the
Government or the authority, as the case may be, has acted fairly and has
arrived at the best available arrangement in the circumstances.

36. It
is then submitted that when the Board of Directors had asked the Managing
Director not to agree for a lease amount of less than Rs.31.68 crores and to
report back to the Board the lease amount which M.G.B. is prepared to pay, the
Managing Director should have reported back to the Board instead of entering
into a MoU for a lesser amount. It is submitted that the Managing Director was
bound to and ought to have carried out the instructions of the Board. The
Managing Director was trying to over-reach the Board of Directors by several
means, one of which was his letter dated May 3, 1994, it is submitted. In reply to this,
it is pointed out by the learned counsel for the respondents that Sri Basu did
write to M.G.B. on May 10, 1994 as directed by the Board but that the M.G.B.
did not agree to the figure stipulated by the Board (vide M.G.B. letter dated
May 17, 1994) and that both these letters were placed before the Board. Be that
as it may, once the Government directive was issued, all this controversy lost
its relevance.

37. It
is then argued that the power to give directives is vested by Article 117 in
the President alone and that no such directive can be given by the Government
of India. It is submitted that the Rules of Business framed by the President of
India under Article 77 are relevant only in the case of executive power of the Union and that Article II 7 of the Articles of Association
of H.A.L. is no part of the executive power of the Union. Accordingly, it is submitted, the authentication of
the said directive by the Deputy Secretary to the Government of India is
equally incompetent.Now, the directive in this case is issued by the Government
of India. The letter says that it was being issued with the approval of the
Minister for Chemicals and Fertilizers. 'Mere is indeed no reference to the
President at all. The question, however, is whether the President in Article 1
17 of the Articles of Association of H.A.L. means and refers only to the
President of India and whether it is a power to be exercised by the President
personally? We do not think that it would be reasonable to construe Article 117
as suggested by the appellants. The President of India like the Queen of
England is a Constitu- tional Head. [See Rai Sahib Ram Jawaya Kapur & Ors.
v. The State of Punjab (1995 5 (2) S.C.R.225) and Shamsher
Singh & Anr. v. State of Punjab (1975
(1) S.C.R.814)] H.A.L. is a Government company. It was 437 really an agency, an
instrumentality of Government of India though given a corporate shape. Article
117 is one form of control the government has over these corporate bodies. In
the circumstances, it would be reasonable to understand the expression
"President" in Article 117 as referring to the Government of India.
To say that this power should be exercised by the President himself is neither
practicable nor consistent with the dignity of the President. Of course, while
the directive must be expressed in the name of the President but that is
ultimately a matter of form, and the form has been held to be mandatory. In
this view of the matter, it is unnecessary to consider whether it is open to
the appellants to raise this contention. We are, therefore, unable to say that
the directive issued is not valid in law or that it was not issued by the
competent authority. It is not disputed that the directive is binding upon
H.A.L. and all its authorities. If so, the corporate identity or corporate
existence of H.A.L. is in no way violated by the directive given. It cannot
also be stipulated that before giving the directive, the appellants should have
been heard.

Not
only giving of directive was an internal matter between H.A.L. and the
Government of India, there was no point in giving notice to SPIC and P.B.G.
whose offers were already rejected by the Board once and again after
re-evaluation directed by the Government.

38.
Lastly, it is argued that in the case of Torrent, the Minister of State had
asked the H.A.L. to evaluate its proposal on June 15, 1994 and that without any reference to the said order, the MoU
was entered into on June
20, 1994.

It is,
however, explained by the respondents that the said order of the Minister of
State was revised by the Minister for Chemicals and Fertilizers even before the
issuance of the directive. Moreover, Torrent having entered the picture very
late cannot complain of lack of fuller consideration.

It is
equally evident that since it was already in the process of selling up its own
plant and also because its technology too was that of Biotica of Slovakia,
which was already rejected in the case of P.B.G., no useful purpose would be
served even by asking a reconsideration of its proposals.

39.
Before parting with this matter, we must say that MoU entered into with M.G.B.
is subject to the final approval of the Government of India, as expressly
provided in the directive dated 20th June, 1994. We are sure that the Government would examine all the
terms of MoU carefully before according its approval. It is obvious that it is
always open to the Government to seek such modification of the terms of MoU as
it thinks appropriate and as are feasible. But if it approves the MoU in the
present form or in the modified form as the case may be, it is but in the
interest of all concerned that the project is given a concrete shape without
any further loss of time.

40. For
the above reasons, the appeals fail and are dismissed. No costs.